Monetary policy and the art market; is there a bubble forming?

London-based Spear's, an asset management firm, recently posted an article linking the continuing boom in the high end art market to the Federal Reserve's policy of "quantitative easing," or long-term asset purchases. Concluding that the Fed's policy, by driving down interest rates, encourages stock market investment, thereby increasing high net worth investors' confidence and the funds they have available for art purchases.

Spear's points to Christie's May Contemporary art sale which set a world record $495 million for a single auction. A Jackson Pollock painting brought $58 million, three lots brought more than $40 million each and sixteen artist records were set. Among those were Lichtenstein, Asawa and Basquiat.

And buyers worldwide are participating in the binge. Russian investors spent freely at Christie's and Sotheby's spring sales, where the Russians reportedly bid on paintings by Kandinsky, Renoir, Vuillard and van Gogh. Chinese bidders were also active.

In Christie's view, the art market is in better condition than the general economy worldwide. It cites as an example Christie's France, whose first half 2013 performance was up 33 per cent over last year. Their explanation: fine art is "collected by an international public who isn't affected by the (economic) crisis."

Forbes blogger Agustino Fontevecchia reported in May that the total value of contemporary art sold in 2012 was $6 billion, a significant increase from the total of $850 million realized in pre-recession 2002.

TheArt Newspaper speculates the surge in prices may be due in part to the number of new museums being built worldwide, including the Abu Dhabi Guggenheim and many in China, which boasts of building "1000 museums."

Many of today's super rich are newly wealthy and don't have family art collections, leading The Art Newspaper to speculate that some of today's buying frenzy is due to these folks' desires to enter the market and furnish their new, lavish homes. They quote a Forbes report that 840 of the 1226 people in its 2012 billionaire rankings are self-made.

An offshoot of dramatically increasing prices at the high end of the art market and the widening gap in values is a surge of interest in prints or "multiples." With billionaires cornering the high end, what's a millionaire to do but buy prints? That is, if you can't afford the Picasso painting purchased by hedge fund manager Steve Cohen for $155 million, a print for under $10,000 may be within reach. Sotheby's print sale this week featured an Edvard Munch Evening,Melancholy wood block print, one of only seven in private hands, with a presale estimate of £550,000 to £750,000. It sold for £962,500 or approximately $1.5 million US. That compares to his painting The Scream which sold in 2012 for a Guinness World Record of $120 million for the most expensive painting ever sold at that point.

With the heady auction results, come concerns. Some are voiced by dealers who can no longer compete in the market; others from other market participants who fear the lack of transparency in some venues. According to a recent New York Times piece, James Hedges IV, a New York art collector and financier, thinks the art market now feels like the private equity market felt in the 1980s. According to Hedges, "it's got practically no oversight or regulation."

More about legislative and regulatory proposals next time.

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Monetary policy and the art market; is there a bubble forming?

London-based Spear's, an asset management firm, recently posted an article linking the continuing boom in the high end art market to the Federal Reserve's policy of 'quantitative easing,' or long-

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